3 FTSE 100 dividend stocks I’d buy that pay more than Tesco shares

These overlooked FTSE 100 (INDEXFTSE: UKX) dividend stocks could boost your income, says Roland Head.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I recently suggested the Tesco share price could be a good long-term buy. I like the supermarket’s large market share and sector-leading profit margins. I also rate management highly.

However, I don’t think Tesco shares are particularly cheap at the moment. On 14 times forecast earnings and with a forecast dividend yield of 3.3% for this year, the price looks about right to me. It’s also worth remembering that you can get a 4.4% dividend yield by buying the FTSE 100, without the risk of owning individual stocks.

If you’re already in Tesco, I’d sit tight. But here are a few stocks I’d consider to boost your dividend income and help diversify your portfolio.

A long-term winner

Motor and home insurer Admiral Group (LSE: ADM) is a well-known name that’s been a star investment for long-term shareholders. The Admiral share price has doubled since 2013 and risen eight-fold since the group’s flotation in 2004.

The firm’s insurance business model allows it to hold less cash than some rivals. This means the company has generated a return on equity of about 50% for at least the last five years. That’s an outstanding level of profitability, far better than most peers.

Strong management has guided the group to steady growth, making Admiral a cash machine for shareholders. Annual dividends have often equalled an entire year’s profits.

The shares looked expensive to me earlier this year. But the stock’s recent retreat has pushed the forecast dividend yield for 2019 up to 6.4%. At this level, I’d rate Admiral as a buy.

Profit from packaging

Another FTSE 100 firm I rate highly is packaging group Mondi (LSE: MNDI). Like Admiral, Mondi enjoys high profit margins.

The group generated a return on capital employed of 18.7% last year. That means £187 of operating profit for each £1,000 of capital tied up in the business. That’s a good performance for a capital-intensive manufacturer, in my view.

The shares fell sharply in the market sell-off at the end of last year, and have yet to recover. But the business still seems to be trading well. Underlying profit during the first quarter was 6% higher than in the final quarter of last year, and the company says net debt fell during the quarter.

Analysts expect Mondi to generate earnings of €1.85 per share in 2019, putting the stock on a forecast price/earnings ratio of about 10. The dividend yield of 4.1% should be comfortably covered by earnings. I rate this stock as a buy at current levels.

A takeover opportunity?

Mining group Anglo American (LSE: AAL) is the smallest of the big three diversified miners listed in the FTSE 100. It’s also the only one with heavy exposure to the platinum mines of South Africa.

The group’s exposure to Africa attracts mixed opinions. Rival mining tycoon Anil Agarwal, who controls a 20% stake in Anglo American, is said to believe the firm should be investing more in Africa. On the other hand, Anglo boss Mark Cutifani has avoided expansion in Africa. Instead, he recently committed billions of dollars to a new copper mine in Peru.

Rumours persist that Agarwal will stage a takeover bid for Anglo. In the meantime, the miner’s shares don’t look too expensive to me, on nine times earnings and with a very affordable 4.7% yield. I think further gains are possible.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head owns shares of Tesco. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »